March 24, 2022
The New York Times had a piece today assessing whether we were likely to return to the pre-pandemic situation, with low inflation, low interest rates, and moderate growth. One issue it raised arguing in the opposite direction was that consumer spending has remained exceptionally strong. “And they thought consumer spending would taper off as government pandemic relief checks faded into the rearview mirror. Shoppers have kept at it.”
Actually, savings rates have been pretty much at their pre-pandemic average the last few months.
Consumption would be exceptionally strong if the saving rate had fallen below its pre-recession level, implying that people were spending based on the wealth they accumulated during the pandemic. While that could still happen, to date, there is little evidence that people are spending down their accumulated wealth to any substantial extent.
The labor market has also largely returned to its pre-pandemic state. The employment-to-population ratio for prime age workers (ages 25 to 54) is just a 1.0 percentage points below its pre-pandemic peak, a level above its average for 2018. Most of the remaining gap is easily explained by the 1.2 million people who reported that they were not in the labor force in February because they either had COVID-19, were concerned about getting it, or caring for a family member with COVID-19.
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